Using calculations and diagrams
John should calculate the actual dollar amount involved in the buy write, in order to decide if the commitment is appropriate for him. In addition, he will draw a profit/loss diagram to figure out the maximum profit potential, maximum risk potential, and the breakeven point at expiration of the covered call position he is considering.
Selling covered calls is a strategy in which an investor writes a call option contract while at the same time owning an equivalent number of shares of the underlying stock. Learn the basics of selling covered calls and how to use them in your investment Strategy.